Could Drexler and Yanai Make J.Crew the Middle Man in Fast Retailing’s Empire?

Hoping to capitalize on the chain’s success even as competing retailers falter, Uniqlo owner Fast Retailing is reportedly in talks to buy preppy clothier J.Crew. Could J.Crew become the missing jewel in Fast Retailing’s bid to become the globe’s biggest retailer?

Just last week there were rumors that J.Crew was planning its second IPO as a way to gain access to funds for expansion. CEO Mickey Drexler and creative head Jenna Lyons have turned the brand around over the last decade, making the mid-priced brand extremely attractive to Fast Retailing, which hopes to take advantage of J.Crew’s accomplishments and build on them even as some iconic competitors, such as Abercrombie & Fitch, struggle with the finicky retailing scene.

But just because the retailer has managed some success doesn’t mean it came easy. The inveterate micro-manager has admitted that J.Crew recently has “strayed too far” from the brand’s core styling motif and that the company’s recent opening in the UK was “tricky.”[more]

But the $2.4 billion-in-sales brand largely remains on a roll. In fact, J.Crew could fetch a $5 billion valuation in any sale or IPO, according to the news service. That would be about twice what private-equity firms TPG and Leonard Green paid for J.Crew three years ago.

“They’re hot, and they obviously want to expand more so they’re looking for capital,” said Paula Rosenblum, a Miami-based retailing analyst, according to Bloomberg. “The debate of whether to go public or resell to somebody else is endless. Drexler does know the public markets; he’s been there before.”

In a hook-up with Fast Retailing, however, Drexler would no longer be the only strong-minded, accomplished CEO involved. Self-made billionaire and Fast Retailing CEO Tadashi Yanai has a clear outlook on what he wants Fast Retailing to become: not so fast, for one.

Fast Retailing is actually looking to move away from its fast fashion core and needs to find a middle brand between cheap Uniqlo and other more expensive acquisitions, like Theory to better compete against Spain’s Inditex Corp., which owns Zara, and Hennes & Mauritz AB, the parent company of fast-retailing juggernaut H&M.

But Yanai, who is known for making rash decisions that don’t always end well, is at the center of growing concerns from analysts that Fast Retailing could overpay for the US brand. Still, bankers in Tokyo insist that the company would “not pay $5 billion for J.Crew.”

But one banker told the news service that Fast Retailing’s billionaire CEO, Tadashi Yanai, “would not pay $5 billion for J.Crew.” After all, Yanai refused to pay what he saw as an inflated price for Barneys New York back in 2007.

Nevertheless, the idea makes some sense to outsiders. “There have been rumors in the past about [Fast Retailing’s] interest in brands like Abercrombie & Fitch, or Esprit, or Giordano,” said Deutsche Securities analyst Takahiro Kazahaya. “I couldn’t quite see the fit. But with J.Crew, it’s not a bad one.”

Whether the idea makes sense to the companies’ insiders could be apparent soon.